On 13thJune 2022 a unanimous U.S. Supreme Court held that 28 U.S.C. §1782 – which allows a party to apply for discovery in foreign proceedings - does not apply to private foreign or international arbitration.
The decision removes a useful tool for gathering evidence to support claims of breach of license or technology transfer agreements in international arbitrations. If a licensee or transferee is under-reporting, it can be hard to obtain proof of the level of under-reporting. An application for discovery against a United States based customer of a foreign party or a shipper of goods could sometimes provide useful evidence to support a claim. While most arbitral tribunals will order some document disclosure, this is generally not as broad as the discovery that can be obtained under §1782. §1782 therefore was a useful tool to get disclosure of shipments. This could be true even if no application was made because a respondent might give voluntary disclosure to avoid a more intrusive application under §1782 against a customer.
It does remain possible to obtain disclosure orders against third parties to support international arbitration in a number of common law jurisdictions such as Hong Kong, Singapore and the UK under so-called Norwich Pharmacal principles, however, the rules applied are much stricter than those under §1782 and can be much more expensive than the relatively simple §1782 procedures. They will also not cover companies solely based in the United States. Chinese civil procedure also provides for obtaining the assistance from the courts for arbitration but for arbitrations seated outside Mainland China this is limited to Hong Kong seated arbitrations and, for the most part, applications must be filed only after the arbitration has commenced.
The US Supreme Court decision
Under 28 U.S.C. §1782 a federal district court may order the production of evidence or testimony for “for use in a proceeding in a foreign or international tribunal”. In the decision the U.S. Supreme Court decided that private foreign or international arbitration panels did not constitute a “foreign or international tribunal” under §1782.
The US Supreme Court decision relates to two different arbitrations. The first case was an international sale of goods dispute which was set to be resolved through a DIS (German Arbitration Institute) arbitration seated in Munich, Germany. The German arbitration concerned a U.S. based automotive parts manufacturer and a Hong Kong based company. The Hong Kong based firm had filed an application under §1782 in federal court, seeking information from the U.S. firm and its officers. In its defence the U.S. firm claimed that the arbitration panel under the DIS rules was not a “foreign or international tribunal” under §1782.
The second case was a UNICITRAL arbitration initiated under a BIT (bilateral investment treaty) provision. A Russian corporation initiated an arbitration against Lithuania claiming that Lithuania expropriated investments when it had nationalized a Lithuanian bank in which the Russian corporation had interests. The Russian corporation had filed a §1782 application in federal court, seeking information from the person who was appointed as temporary administrator of the Lithuanian bank. As a defence the consulting firm, where the person serves as CEO, argued that the ad hoc UNICITRAL arbitration panel was not a “foreign or international tribunal” under §1782 but instead a private adjudicative body.
In deciding the case The U.S. Supreme Court held that “[..] only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.” As such, parties in private foreign or international arbitrations may not rely on §1782 for discovery assistance.
As with all dispute resolution the ability to gather evidence in support of claims made in an arbitration is very important. The decision of the US Supreme Court has removed a useful tool. On a tactical level, parties need to consider if they can get evidence some other way before bringing arbitration proceedings knowing that they may not rely on §1782 for discovery assistance. This may now require greater use of private investigators or applications in jurisdictions which do allow for such discovery.